This is a blog about the use of emerging technologies to boost the governance of public procurement. It used to be a blog on EU law, with a focus on free movement, public procurement and competition law issues (thus the long archive of entries about those topics). I use it to publish my thoughts and to test some ideas. All comments are personal and in no way bind any of the institutions to which I am affiliated and, particularly, the University of Bristol Law School. I hope to spur discussion and look forward to your feedback and participation.

I have published a short paper commenting on the transposition of Article 56(3) of Directive 2014/24/EU through the 2017 reform version of Article 72 of the Portuguese Code of Public Contracts. I think this is an interesting case study on some of the difficulties that the new provision on the contracting authority's power to seek clarifications can pose in practice--and maybe anticipates some of the future challenges in the development of the Slovensko-Manova-Archus and Gama case law. The abstract of the paper is as follows:

This paper provides a critical assessment of the rules regarding the clarification, supplementation and correction of tenders in procedures for the award of public contracts regulated by the EU 2014 Public Procurement Package. It does so through a detailed assessment of the transposition of Article 56(3) of Directive 2014/24/EU by means of the post-2017 reform version of Article 72 of the Portuguese Code of Public Contracts. The paper concentrates on four main issues: the existence of a mere discretionary power or a positive duty to seek clarifications, corrections or supplementations of tenders and their accompanying documentation; the constraints imposed on such power or duty; the desirability of unilateral tender corrections by the contracting authority; and the transparency given to the correction, supplementation or clarification of tenders. The paper assesses each of these issues against the backdrop of the existing case law of the Court of Justice of the European Union, as well as with a functional approach to the operationalisation of the Portuguese rules on correction, supplementation and clarification of tenders for public contracts.

In its Judgment of 28 February 2018 in MA.T.I. SUD, C-523/16, EU:C:2018:135, the Court of Justice of the European Union (CJEU) accepted the compatibility with EU public procurement law (2004 version) in principle of domestic rules allowing for the 'remedying of procedural shortcomings in return for payment', whereby a contracting authority can invite any tenderer whose tender is vitiated by serious irregularities to rectify that tender, subject to the payment of a financial penalty--provided that the amount of that penalty is proportionate.

However, given previous case law excluding the possibility to remedy serious shortcomings in submitted tenders, the CJEU has stressed that such 'remedial mechanism in return for payment' is subject to the limitation that, despite the existence of such financial penalty, the contracting authority cannot require a tenderer to remedy the lack of a document which, according to the express provisions in the contract documentation, must result in the exclusion of that tenderer, or to eliminate irregularities such that any corrections or changes would amount to a new tender (para 65).

It is important to note, though, that despite establishing this position in principle, the CJEU also provided extremely clear indications that, in its view, there is a need to subject the assessment of the adequacy of the correction of the tenders to a strict assessment to make sure that they do not imply a new tender or the circumvention of the tender documentation (or, in other words, to make sure that the correction is not really of a serious irregularity, but rather a minor one), and that the penalties threatened in the Italian domestic cases that generated the preliminary reference cannot be considered proportionate (paras 62 & 64).

This anticipated analysis of incompatibility in concreto despite compatibility in abstracto begs the question whether the position in principle taken by the CJEU--ie the acceptaibility of non-serious modifications subject to proportionate financial penalties--is an adequate default rule, or whether a different default rule would be preferable--ie the acceptability of non-serious modifications without penalty.

In my view, and largely for the same reasons given in criticising the Opinion of AG Campos Sanchez-Bordona that the CJEU has now followed (see here, where they are developed in detail), in tolerating the imposition of financial penalties as a condition for the remediation of minor procedural defects, the MA.T.I. SUD Judgment sets the wrong default rule and is undesirable for its potential anti-SME effects, as well as due to the potential blurring of the narrow space that actually exists for the correction of serious irregularities under the Manova-Slovensko-Archus and Gama case law (see here, here and here). In adopting a seemingly more flexible approach in principle, in MA.T.I. SUD the CJEU may be creating more confusion than providing clarity, solely with the aim of maintaining a questionable space for domestic procedural administrative discretion. On balance, I would have thought it preferable for the CJEU to indicate more clearly and simply that serious irregularities cannot be corrected (with or without financial penalty), and that the correction of minor irregularities needs to be always accepted without sanction.

In MA.T.I. SUD, the CJEU assessed the compatibility with Art 51 of Directive 2004/18/EC of an Italian provision that enabled tenderers for public contracts to remedy any irregularities in their tenders, but at the same time imposed on them a financial penalty proportional to the value of the contract--of between 0.1% and 1% of the value of the contract, with a maximum ceiling of €50,000. The amount of the penalty was to be set in advance by the contracting authority and guaranteed by a provisional security (or bid bond), and could not be adjusted according to the gravity of the irregularity that it remedied. The maximum penalty was later reduced to €5,000, and eventually suppressed. This reduces the immediate impact of the MA.T.I. SUD Judgment. However, this CJEU ruling will be relevant beyond the specific context of Italian procurement rules, not only in relation with the now phased out transposition of Art 51 of Directive 2004/18, but also with Art 59 of Directive 2014/24/EU (which was not applicable ratione temporis). Both provisions foresee that contracting authorities can seek clarifications from tenderers under specified conditions.

There are some passages of the Judgment I consider relevant:

... when they implement the possibility provided for in Article 51 of Directive 2004/18 [whereby the contracting authority may invite economic operators to supplement or clarify the certificates and documents submitted to it], the Member States must ensure that they do not jeopardise the attainment of the objectives pursued by that directive or undermine the effectiveness of its provisions and other relevant provisions and principles of EU law, particularly the principles of equal treatment and non-discrimination, transparency and proportionality ...

It must also be borne in mind that Article 51 of Directive 2004/18 cannot be interpreted as allowing the contracting authority to accept any rectification of omissions which, as expressly provided for in the contract documentation, had to lead to the exclusion of the tenderer ...

... a request for clarification cannot make up for the lack of a document or information whose production was required by the contract documents, the contracting authority being required to comply strictly with the criteria which it has itself laid down ...

In addition, such a request may not lead to the submission by a tenderer of what would appear in reality to be a new tender

... the very concept of substantial irregularity ... does not appear to be compatible with Article 51 of Directive 2004/18 or with the requirements to which the clarification of a tender in the context of a public contract falling within the scope of Directive 2004/17 is subject, according to the case-law of the Court ...

It follows that the mechanism of assistance in compiling the documentation [under dispute] ... is not applicable if the tender submitted by a tenderer cannot be rectified or clarified within the meaning of the case-law referred ... above, and that, consequently, no penalty can be imposed on the tenderers in such a case (C-523/16, paras 48-49, 51-52 & 55-56 references omitted and emphasis added).

In my view, this reasoning of the CJEU reflects the state of the law and a desirable normative position. It would have allowed the CJEU to simply declare the Italian system incompatible due to the excess that a correction of serious irregularities would imply in comparison with the boundaries on tender modification derived from Manova-Slovensko-Archus and Gama. And the CJEU could have done that without entering into a discussion of whether proportionate penalties for non-substantial modifications are acceptable. On this point, it should be stressed that contested Italian rule also foresaw that '[i]n the case of non-substantial irregularities, that is, any non-essential absence or incompleteness of declarations, the contracting authority shall not require the remedying thereof or impose any penalty' (AGO, C-523/16, para 5). Therefore, in the case at hand, the narrow regulatory space left by the CJEU for the imposition of sanctions would not be occupied by the Italian rules, as the Italian legislator saw no need to sanction any such minor tender corrections.

On the whole, then, the MA.T.I. SUD Judgment seems to unnecessarily create a default rule that can be problematic in the interpretation and operationalisation of the rules in Arts 56 and 59 of Dir 2014/24. This stems from the fact that the CJEU has endorsed the underlying principle that 'the imposition of a financial penalty is indeed an appropriate means of achieving the legitimate objectives pursued by the Member State related to the need to place responsibility on the tenderers in submitting their tenders and to offset the financial burden that any regularisation represents for the contracting authority' (para 63). In my view, this runs contrary to the pro-competitive and pro-SME orientation of the 2014 Public Procurement Package. It also reflects a general understanding of public procurement law not as a mode of governance aimed at ensuring best value for money in the expenditure of public funds, but rather a set of fully justiciable rules aimed at discharging the cost and risk of the procurement function on the economic operators, which is then of course putting pressure at the other end of the spectrum via claims for damages where (complex) justiciable rules are not complied with absolutely. In my view, this creates an unrealistic framework for the carrying out of procurement efforts, and more scope for collaborative approaches within the boundaries of the requirements for equal treatment and competition would be superior.

Therefore, I can only hope that, in the future and with a right case, the CJEU will be able to further clarify its position--or, rectius, to reverse position and rule out the possibility of intra-tender sanctions for minor modifications. This is a normative point and, as I said before, the same way I argue against charging potentially interested tenderers for access to the tender documentation, I also take the normative position that imposing fines for the remediation of documentation shortcomings is undesirable, which leads me to propose their eradication de lege ferenda (by analogy, see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 280-281).

In his Opinion of 15 November 2017 in case MA.T.I. SUD, C-523/16, EU:C:2017:868, Advocate General Campos Sánchez-Bordona has considered whether, in a situation where a tenderer for a public contract has submitted incomplete information, national rules subjecting the possibility of supplementing that documentation to the payment of a fine are compatible with EU public procurement law.

The dispute concerned a 2014 reform of the Italian law transposing 'Article 51 of Directive 2004/18/EC in a manner which enabled tenderers for public contracts to remedy any irregularities in their tenders, but at the same time imposed on them a financial penalty proportional to the value of the contract' (para 1)--of between 0.1% and 1% of the value of the contract, with a maximum ceiling of €50,000 (para 5, by reference to Art 38(2a) of the Italian Legislative Decree No 163 of 2006). Interestingly, the rule also foresaw that '[i]n the case of non-substantial irregularities, that is, any non-essential absence or incompleteness of declarations, the contracting authority shall not require the remedying thereof or impose any penalty' (idem).

AG Campos has submitted that Art 51 Dir 2004/18 did not prohibit the imposition of such fines, 'provided that [the national legislation] ensures compliance with the principles of transparency and equal treatment, that the remedying of those irregularities does not make possible the submission of what, in reality, would be a new tender and that the burden is proportionate to the objectives justifying it' (para 80), but that, under the circumstances of the case, a fine of between 0.1% and 1% with a maximum of €50,000 was not allowable (para 80). The AG Opinion and the future Judgment of the Court of Justice will be relevant for the interpretation of Articles 56 and 59 of Directive 2014/24/EU, but I am not sure that the reasoning can be simply carried forward to a regulatory setting that indicates more clearly the conditions for the request of clarifications. In this post, I pick on a few elements of the analysis of AG Campos Sánchez-Bordona in his MA.T.I. SUD Opinion, and reflect on the applicability of the reasoning to the post-2014 setting.

Some preliminary normative thoughts

As a preliminary point, though, I think it worth stressing that the functioning of a system allowing for ‘remedying procedural shortcomings in return for payment’ is probably better understood as a system allowing 'avoiding exclusion for payment', in the sense that an undertaking that has submitted incomplete or unclear documentation is given a chance to avoid exclusion from the procurement procedure under the double condition that (a) it is able to submit a clarification or supplementary documentation that does not materially alter its tender, and (b) it is able (and willing) to pay the financial sanction. While (a) is relevant to the goals of the procurement 'triage' process because the contracting authority has a structural interest in attracting as many (in open procedures) or the best (in restricted and different variations of negotiated procedures) qualified tenderers, (b) is irrelevant unless and except in the case in which the inability to pay the fine signals financial difficulties or bankruptcy--which should in any case be captured by discretionary exclusion grounds based on that specific circumstance. Therefore, (b) comes to create a functional distortion of the procurement procedure and, in particular, of the aims of the qualitative selection phase.

While sanctions in this setting may be seen as an incentive for undertakings to submit full and accurate documentation, this can also be the type of provision that creates a disincentive to participate, and one that seeks to displace part of the costs of the administrative procedure from the contracting authority unto the tenderers (for, statistically, there will be errors and this type of cost should thus be seen as part of the ordinary costs of running procurement processes). While the financial impact of the 'fine-based remedial system' will then largely be borne by the tenderers, the benefits will also fall on the contracting authority (at least in those cases where the 'paying, sloppy undertaking' ends up being awarded the contract for having submitted the most advantageous tender). This creates a strange trade-off between private costs and private and public benefits, which can be further complicated where the imposition of the fine has a discretionary element to it (eg the possibility to waive the fine for non-essential defects, where the determination of the threshold of 'essentiality' is far from clear-cut and objective).

At first sight, then, this seems like the type of rule that can create perverse incentives--in particular in terms of SME access to procurement procedures, or their ability to continue in the race when they commit mistakes--which comes to raise the threshold of 'professionalism' needed to participate in procurement processes without risking significant financial consequences. On the whole, then, from a normative perspective, I think that this is the kind of rule that seeks to reduce the administrative cost of procurement at the expense of reduced (potential) competition for public contracts, in particular from SMEs. The same way I argue against charging potentially interested tenderers for access to the tender documentation, I would also take the normative position that imposing fines for the remediation of documentation shortcomings is undesirable, and would propose their eradication de lege ferenda (by analogy, see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 280-281).

This should be kept in mind when reading the remainder of this post, as this line of normative argumentation was used by the parties. In particular, in the clear formulation of the European Commission, which stressed that 'the contrast between paying a fine for a minor irregularity and the uncertainty of being awarded a contract may cause tenderers, especially small and medium-sized undertakings, not to participate in tenders or, where applicable, to withdraw their participation after the tenders have been submitted' (para 38, although the Commission goes on to note that the payment would be allowable despite its dissuasive effects, 'provided that it pursues a legitimate objective of general interest. Such objectives may include both the aim of making undertakings behave responsibly (encouraging them to act seriously and promptly when supplying the documentation for their tenders) and that of financially compensating the contracting authority for the work involved in the more complicated and extended procedure of remedying procedural shortcomings', para 39, which is not completely aligned with my normative position).

‘Remedying procedural shortcomings in return for payment’ under the pre-2014 EU public procurement rules

In the pre-Slovensko (C-599/10, EU:C:2012:191), pre-Manova (C-336/12, EU:C:2013:647) setting, where some doubts could be harboured as to the possibility for contracting authorities to seek clarifications of the tender documentation, and its limits, the only guidance the then current EU rules provided was to be found in the sparse Article 51 Dir 2004/18/EC, which foresaw that 'The contracting authority may invite economic operators to supplement or clarify the certificates and documents submitted pursuant to Articles 45 to 50'--that is, clarifications or supplements to the certificates and documents concerning (i) the personal situation of the candidate or tenderer (art 45); (ii) its suitability to pursue the professional activity (art 46); (iii) its economic and financial standing (art 47); (iv) its technical and/or professional ability (art 48); (v) its quality assurance standards (art 49); and (vi) its environmental management standards (art 50).

However, Slovensko and Manova came to clarify the possibility for clarifications to be sought (which in my view can result in a duty to seek clarifications under certain conditions, see here), and this seemed to prompt a legislative reaction in Italy. Given the need to allow for clarifications and modifications of the tender documentation in certain cases, Italian procurement law was modified from a system of strict disqualification for formal shortcomings, to as system allowing for 'remedying procedural shortcomings for payment' [see M Comba, 'Qualification, Selection and Exclusion of Economic Operators (Tenderers and Candidates) in Italy', in M Burgi, M Trybus & S Treumer (eds), Qualification, Selection and Exclusion in EU Procurement(DJØF Publishing, 2016) 85, 97-100]. However, this modification of the rules and the increased procedural flexibility were subjected to the payment of an administrative fine by the undertakings that had presented incomplete or unclear documentation (see above).

AG Campos assesses the compatibility of this approach to financially-conditional clarification or supplementation of documents under the rules in Directive 2004/18/EC (as Directive 2014/24/EU was not applicable ratione temporis, see paras 50-52 of his Opinion). In his view, there is 'nothing in [the case-law of the Court on Directive 2004/18] which might preclude the Member States from providing for contracting authorities to charge a certain amount (in this case, as a penalty) to tenderers who have placed themselves in that situation' (para 56, reference omitted). Further, he considers that there is no objection in principle and that any EU-law derived restriction on this possibility would be a matter for a proportionality assessment. In his words,

... national legislation may ... authorise the remedying of formal shortcomings in the tenders, while imposing on the tenderers a certain economic burden in order to encourage them to submit their tenders correctly and to pass on to them the additional cost (if any) arising from the procedure for remedying shortcomings. However, national legislation of that kind, which, owing to the magnitude of that burden, constitutes a not easily surmountable obstacle to the participation of undertakings (in particular, small and medium-sized ones) in public procurement procedures, would run counter to Directive 2014/18 and to the principles underlying it; moreover, this would also undermine the competition to be desired in respect of those procedures(para 58, references omitted and emphasis added).

This leads him to stress that he does 'not consider ... that objections of principle can be raised to a mechanism which makes the correction of shortcomings in the submission of a tender subject to a payment by the person responsible for those shortcomings and required to remedy them' (para 59, emphasis in the original).

AG Campos then proceeds to assess whether such non-negligible restriction to participation is created by the Italian rule at stake. He also addresses the issue whether the Italian provision may be in breach with the Court of Justice's case law on the limits to the allowable modifications and clarifications to tender documentation (paras 60-65). However, this concerns a literal interpretation of the Italian rule (which foresees the possibility of remedying '[a]ny absence, incompleteness or any other substantial irregularity in the information'). However, even if part of the rule should be quashed for exceeding the relevant case law, the possibility would have remained to require payment for the remediation of a 'Manova-like' situation that concerned the absence of (pre-dating) information. Thus, the analysis of the rule remains interesting even in the case of partial incompatibility.

A tricky proportionality assessment

In AG Campos' view, the relevant point is thus to establish whether the financial burden derived from the 'remedy for payment' rule is not an 'easily surmountable obstacle' to participation in procurement procedures, in particular by SMEs. In the second part of his Opinion, he deals with this point and considers two sets of issues. First, he carries out a strict proportionality assessment. Second, he goes back to points of principle despite his previous position that no objections of principle could be raised against the mechanism, which is slightly puzzling.

On the strict proportionality front, the Opinion submits that

The two criticisms of that instrument ... are, on the one hand, that the amount of the penalty is determined a priori, in the contract notice itself, without attempting to assess the magnitude of the irregularities committed or the infringing tenderer’s economic circumstances, and, on the other hand, that the resulting amounts (up to a maximum of EUR 50 000) do not comply with the principle of proportionality. Moreover, the exorbitant amount of the penalty is such as to deter participation in the tendering process, especially by small and medium-sized undertakings, thereby restricting competition.

... the objectives which might justify the imposition of the penalties are not consistent with the minimum and maximum amounts of those penalties...

Of course, the argument of higher administrative costs does not justify such substantial amounts: it should be borne in mind that even the minimum of 0.1 per cent (and a fortiori 1 per cent), in contracts subject to [Union] directives, is in itself high, given the lower thresholds for the application of those directives. That argument is also not consistent with a single amount which is established a priori and consists in a percentage of the amount of the contract, since it would be logical, following that line of thought, to tailor to each individual case to the resulting higher costs.

The disproportionate nature of the penalties is evident in the present two cases, which merely arise from the practical application of the legal provision: an executive’s forgetting to sign and the failure to provide a sworn statement regarding a criminal record result in fines of EUR 35 000 and EUR 50 000 respectively. I find it difficult to accept that the higher cost to the contracting authorities, merely for detecting those two anomalies and for inviting the tenderers to remedy them, corresponds to those amounts, which seem rather to be designed to increase their revenue (paras 71-74, references omitted and emphasis in the original).

This part of the reasoning seems unobjectionable and comes to challenge the possibility of imposing a fine for the remedying of documentation, rather than imposing a duty to cover any additional administrative costs ensuing from the remedial action--which would have been preferable, even if still normatively undesirable (see above). Importantly, this part of the reasoning would have sufficed to quash the Italian provision at stake. However, the Opinion proceeds to assert that

Nor does the aim of ensuring the seriousness of tenders justify such large fines. In the first place, because such fines are imposed (as stated in the tender specifications) regardless of the number of irregularities, that is, regardless of the type of information or document which is missing or must be supplemented and of its greater or lesser significance. The provision treats the offences in a uniform manner and allows their level of complexity to be disregarded.

In the second place, that aim [of ensuring the seriousness of tenders] must be weighed against that of promoting the widest possible participation of tenderers, resulting in greater competition and, in general, the best service to public interests. An excessive penalty will probably deter undertakings with smaller financial resources from participating in calls for tenders for high-value contracts, given the percentage limits stated above. They might also be deterred from participating in future calls for tenders which include the same penalty provision.

Moreover, such a burden will be even more of a deterrent to ‘tenderers established in other Member States, inasmuch as their level of knowledge of national law and the interpretation thereof and of the practice of the national authorities cannot be compared to that of national tenderers’.

In short, a provision the purpose of which was, precisely, to help to remedy formal errors made by tenderers (by amending the previous national rule) and, thereby, to increase their chances of successfully participating in public procurement procedures ultimately deters such participation by imposing financial burdens which are disproportionate to its objective (paras 75-78, references omitted and emphasis added).

In this second part, AG Campos seems to adopt a half-way approach to the objection in principle to the establishment of dissuasive barriers to participation, but only through disproportionate or excessive penalties. I find this problematic because it is very difficult establish at which level the dissuasive effect will kick-in, regardless of what can be considered excessive or disproportionate for the purposes of finding an infringement of EU internal market law. Thus, as mentioned above, I think that there are good reasons to oppose the creation of these mechanisms out of principle (the principle of maximising competition for public contracts, to be precise) and, from that perspective, I find the Opinion in MA.T.I. SUD unnecessarily shy or insufficiently ambitious. This does not affect the outcome of the specific case, but perpetuates the problem in view of the 2016 reform of the controversial Italian law, as discussed below.

‘Remedying procedural shortcomings in return for payment’ under the post-2014 EU public procurement rules

Interestingly, the case comprises a dynamic element that remains unresolved. It is worth noting that the Italian rule at stake in MA.T.I.SUD has been amended, and a 2016 reform relaxed 'the conditions for requiring the fine (imposing it only if rectification is required) and reduced its maximum ceiling (from EUR 50 000 to EUR 5 000)' (para 8). Additionally, any substantive assessment of the revised rule will now have to take place within the setting of the rules in Directive 2014/24/EU, where it can be argued that contracting authorities are under a duty to seek clarifications [for discussion, see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 321-323]. In my view, in this setting, the analysis should not rely on a matter of proportionality, but on a more sophisticated understanding of the functions and balance of interests involved in the qualitative selection phase of each procurement procedure, which very much opposes the levying of financial penalties for clarifications sought by the contracting authority, regardless of their amount.

My view seems to run contrary to that of AG Campos and the European Commission, which both seem to have hinted at the fact that the new maximum amount of €5,000 for necessary rectifications saves the mechanism. This is seen with favour by both the European Commission in its submissions ('a maximum ceiling of EUR 5 000, such as that adopted by the new Public Contracts Code, is more reasonable', para 41) and, in less clear terms, by the AG ('Perhaps that reform, by significantly reducing the absolute maximum ceiling to EUR 5 000, was a response to the national legislature’s belief that that ceiling had been excessive, as the referring court implies', para 72).

If this represented the position the European Commission would defend in a future case involving the revised Italian rule, and/or the position taken in an Advocate General Opinion, I would strongly disagree because I do not consider helpful the view that €5,000 per rectification is 'more reasonable' or 'less excessive' than €50,000 per error (unless waived due to its non-essential character). Going back to the principles behind the creation of this type of mechanisms, important questions remain as to whether the goals it seeks to achieve are either justified in the public interest, or not already sought by other aspects of the procurement rules.

As submitted by the Italian Government and the Commission, the double legitimate goal of the measure would be 'first, to make the tenderer responsible for acting diligently when producing the documentation which will accompany his tender and, second, to compensate the contracting authority for the additional work involved in administering a procurement procedure which allows for the possibility of remedying those irregularities' (para 70).

On the second point, I am not sure that there is a clear public interest in seeking to recover part or all of the administrative costs involved in rectifying qualitative selection decisions in the view of supplemented or clarified information, in particular because this recovery of costs comes at the expense of an immeasurable potential reduction of competition (and, if one is to adopt AG Campos' reasoning, particularly acute in the case of undertakings from other jurisdictions, see para 77--although I am not sure this part of the argument is persuasive). On the first point, the argument that the financial penalty will ensure that undertakings participating in tender procedures will act diligently seems moot. The main incentive for undertakings to act diligently in the preparation of their tenders is the economic incentive derived from being awarded the contract. Thus, creating a negative incentive that works in the same direction that the main economic incentive (ie to prompt undertakings to submit their best possible tender) makes no economic sense because it creates a double-whammy on less diligent tenderers, whereas it adds no incentive for diligent tenderers.

By isolating the qualitative selection phase and thinking that tenderers have an interest in acting in less than diligent terms (within their abilities) seems to me to miss the point. While the frustration at the administrative burden of carrying out several (or at least two) iterations of inspection of documents where there have been mistakes is understandable, that should not lead to the creation of financial penalty mechanism that is bound to both be ineffective in what it tries to achieve and to create a likely high shadow cost in terms of lost potential competition for public contracts. In that regard, I would have preferred for the Italian mechanism to be quashed as a matter of principle on this occasion. But, even if this does not happen and the Court of Justice follows the intermediate approach of AG Campos' Opinion, I would still hope that a fresh consideration of the revised Italian rule under the setting of Directive 2014/24/EU delivered that result.

Postscript [16 Nov 2017, 9am]

After publishing this post, it was brought to my attention that I had missed the additional information in fn 5 of AG Campos' Opinion, where he explains that the Italian fees for remediation of documentation shortcomings has been abolished. Indeed, the fn says:

Although it can have no bearing on the consideration of the questions referred ... a further, more radical amendment of the Code ... occurred in 2017. In fact, Legislative Decree No 56/2017 of 19 April issued a new draft of Article 89(3) which definitively removed the requirement to pay for the remedying of shortcomings upon its entry into force (20 May 2017). Since then, economic operators have been able to rectify the absence of any formal element from their proposals (except those relating to the economic and technical aspects of the tender) without incurring any kind of penalty or other similar charge.

Thus, the issue will remain unresolved, unless similar charges or financial penalties exist in other jurisdictions.

In its Judgment of 11 May 2017 in Archus and Gama, C-131/16, EU:C:2017:358, the European Court of Justice (ECJ) issued two sets of clarifications concerning the rules applicable to utilities procurement, which are however of general relevance, due to the identity of the relevant provisions under the general and the utilities procurement rules.

First, the ECJ explicitly extended the Manovaand Slovensko line of case law to utilities procurement and in relation to the submission of samples, thus trying to clarify the boundaries of the possibility for contracting entities to request and/or accept clarifications or additional documentation (and samples) from tenderers while still complying with the principles of equal treatment, non-discrimination and the obligation of transparency. This first part of the Archus and Gama Judgment will thus be relevant to the interpretation and application of Art 76(4) of Directive 2014/25/EU (which is identical to Art 56(3) of Directive 2014/24/EU).

Second, the ECJ also provided clarification of the rules on standing to challenge procurement decisions under Art 1(3) of the Utilities Remedies Directive (which is identical to Art 1(3) of the general procurement Remedies Directive), and clarified that having or having had an interest in the award of the contract extends to situations where the remedy sought by the challenger cannot result in the award of such contract, but is likely to concern the initiation of a new award procedure for the award of a (different) contract with the same subject matter.

Extension of Manova to the submission of samples

In the case at hand, tenderers were required to submit samples of micro-filmed material together with their tenders. The "quality of the microfilm sample was to be assessed according to the ‘satisfies/does not satisfy’ rule, it being stipulated that if the sample was not satisfactory the offer was to be rejected" (para 14). After submission of their tender and during the evaluation phase, joint tenderers Archus and Gama sent the contracting authority a request for a correction of their tender, arguing that "there had been an inadvertent mistake [... and] seeking to substitute a new microfilm sample for that annexed to their tender, which did not conform to the tender specifications" (para 17). The contracting authority accepted the substitution of the microfilm but requested further clarification from the tenderers because it considered that "they had not provided information on the method for microfilming the sample and the [relevant] technical parameters" (para 18). The contracting authority eventually rejected the tender as non-compliant.

In a rather convoluted drafting influenced by the question referred by the domestic court, the ECJ established that the legal issue arising from these circumstances required it to determine "whether the principle of equal treatment ... must be interpreted as precluding ... a contracting authority from inviting tenderers to provide the required declarations or documents which were not supplied by them within the prescribed period for the submission of tenders or to correct those declarations or documents in case of errors, without that contracting authority also being required to point out to those tenderers that they are prohibited from altering the content of the tenders submitted" (para 24). However, there are two factual elements that seems missing here: first, the fact that the initiative for the correction initiated from the tenderers; and, second, the fact that the correction concerned a sample rather than a declaration or document, and therefore it was not information-based. Disappointingly, none of these important details feature with much prominence in the ECJ's analysis (despite para 35 referring to the fact that "it was [the] tenderers who sent the contracting authority a request for their tender to be corrected").

Indeed, in this part of the Judgment (paras 29-33), the ECJ provides a summary of the Manova and Slovensko line of case law and, in simplified terms, reiterates that "the principle of equal treatment does not preclude the correction or amplification of details of a tender, where it is clear that they require clarification or where it is a question of the correction of obvious clerical errors, subject, however, to the fulfilment of certain requirements" (para 29, emphasis added), such as:

a request for clarification of a tender cannot be made until after the contracting authority has looked at all the tenders and must, as a general rule, be sent in an equivalent manner to all undertakings which are in the same situation and must relate to all sections of the tender which require clarification (para 30)

that request may not lead to the submission by a tenderer of what would appear in reality to be a new tender (para 31)

as a general rule, when exercising its discretion as regards the right to ask a tenderer to clarify its tender, the contracting authority must treat tenderers equally and fairly, in such a way that a request for clarification does not appear unduly to have favoured or disadvantaged the tenderer or tenderers to which the request was addressed, once the procedure for selection of tenders has been completed and in the light of its outcome (para 32)

The ECJ also reiterated that "a request for clarification cannot, however, make up for the lack of a document or information whose production was required by the contract documents, the contracting authority being required to comply strictly with the criteria which it has itself laid down" (para 33, emphasis added).

When trying to apply these general principles to the situation at hand, the ECJ established that "a request sent by the contracting authority to a tenderer to supply the declarations and documents required cannot, in principle, have any other aim than the clarification of the tender or the correction of an obvious error vitiating the tender. It cannot, therefore, permit a tenderer generally to supply declarations and documents which were required to be sent in accordance with the tender specification and which were not sent within the time limit for tenders to be submitted. Nor can it ... result in the presentation by a tenderer of documents containing corrections where in reality they constitute a new tender" (para 36); ultimately leaving it to the "referring court to determine whether ... the substitution made by Archus and Gama remained within the limits of the correction of an obvious error vitiating its tender" (para 38, emphasis added).

I find this reasoning of limited assistance in assessing the legal issue at hand. It would seem to me that the fact that the tenderers unilaterally sought to modify their tender in relation with a sample of the output of the services they were offering should have been given more weight (as this did not result from the observation of an obvious shortcoming or mistake by the contracting authority), and the difficulties in establishing objectively what is obviously wrong with a sample probably should have been enough relevance to provide a more conclusive answer against the acceptability of the substitution of samples.

From that perspective, confronted with a defective sample, the contracting authority could simply observe a deviation from the tender requirements, but it could hardly establish whether the defect resulted from an obvious mistake (ie whether the tenderer mistakenly submitted the wrong sample, as they claimed), or establish a way of clarifying the reasons for the defectiveness of the sample without allowing for the submission of a sample equivalent to the submission of a different tender. Differently from documents and declarations, or from the inclusion of insufficient details or mistakes in an offer, a sample is meant to evidence the product to be supplied or to result from the provision of the services. It is difficult to imagine circumstances under which a contracting authority could meet the strictures of the Manova-Slovensko case law while prompting the tenderer to submit an alternative sample. Moreover, under the rules applicable to the tender, it seems clear that a defective sample should trigger rejection of the tender, without any further analysis, which the ECJ does not seem to give much relevance to either.

Overall, I think that there is enough to justify the rejection of the possibility to substitute samples (in particular at the initiative of the tenderers) within the confines of the Manova-Slovensko test. However, I find this part of the Archus and Gama Judgment slightly confusing due to its open ended wording and, more importantly, to the practical difficulties in applying a test originally meant to correct missing or obviously erroneous information in documents to issues concerning the manifestation of technical aspects in a sample.

On this occasion, I tend to think that the ECJ has possibly pushed too far in trying to create procedural flexibility. While the absence of a sample could have allowed for the contracting authority to request the submission of one (because the problem with the tender would have been obvious), an attempt by the tenderers to substitute a previously submitted sample raises a whole host of other issues. In cases such as this, it may be preferable to have a clear cut rule against the possibility to substitute the sample. Moreover, given that the tender documents had explicitly indicated that rejection of the sample would also imply the rejection of the offer, it is difficult to understand why the ECJ has deviated from its previous approach to imposing compliance with the specific rules created in the tender documentation by the contracting authority itself (not that I find it always or generally convincing (see eg here), but a deviation from that approach seems to create inconsistency). Thus, I do not think this part of the Archus and Gama Judgment deserves a positive assessment.

Clarification of the scope of active standing under the remedies directive

In relation to a rather distinct aspect of the same case, the ECJ was also asked to clarify "whether Article 1(3) of [the Utilities Remedies Directive] must be interpreted as meaning that the concept of ‘a particular contract’ ... refers to a specific public procurement procedure or the actual subject matter of the contract which is to be awarded following a public procurement procedure, in a situation where only two tenders have been submitted and where the tenderer whose tender has been rejected may be regarded as having an interest in seeking the rejection of the tender of the other tenderer and, as a result, the initiation of a new public procurement procedure" (para 47).

Maybe in simpler words, the question concerned whether the EU rules grant legal standing to challenge a procurement decision to disappointed tenderers that are found to be properly excluded and, rather than seeking a remedy concerning the award of the contract as part of the procedure where the dispute arose (which would not be possible), may rather be interested in the cancellation of that procedure and the start of a fresh tender. In the end, the clarification concerned the tenability under EU law of a position that interpreted that "an economic operator who has submitted a tender in a public procurement procedure does not, where his tender is rejected, have an interest in bringing proceedings against the decision awarding the public contract" (para 48).

The answer provided by the ECJ is narrowly tailored to the specific circumstances of the case, as it established that "in a situation ... in which ... two tenders have been submitted and the contracting authority has adopted two simultaneous decisions rejecting the offer of one tenderer and awarding the contract to the other, the unsuccessful tenderer who brings an action against those two decisions must be able to request the exclusion of the tender of the successful tenderer, so that the concept of ‘a particular contract’ within the meaning of Article 1(3) of [the Utilities Remedies Directive] may, where appropriate, apply to the possible initiation of a new public procurement procedure" (para 59).

This interpretation seems generally uncontroversial and follows the same path of extension of the justiciability of exclusion and qualitative selection grounds as the recent Marina del Mediterráneo Judgment (see here). However, it also seems very limited to circumstances that may be difficult to meet in practice in a large number of procedures, such as the fact that only two tenderers participated in the procedure, or that the decisions to reject one tender and award the contract to the other were adopted simultaneously. In that regard, the ECJ could have been slightly bolder and simply clarified that retaining the possibility of being awarded a contract under the same (administrative) procedure is not a pre-requisite for the recognition of active standing to challenge procurement procedures under the EU rules. I would have preferred this broader approach, which could have saved future preliminary references on the basis of cases with minor variations of the underlying factual scenario.

In its Judgment of 2 June 2016 in Pizzo, C-27/15, EU:C:2016:404, the European Court of Justice (ECJ) has provided interpretative guidance on some aspects of the qualitative selection process that contracting authorities need to carry out prior to the award of public contracts covered by the relevant EU rules. It is worth noting that, even if the Pizzo Judgment is based on the rules of Directive 2004/18 (Arts 47 and 48), but the functional criteria it sets will be equally relevant under the new rules of Directive 2014/24 (Arts 56 to 58).

In particular, the Pizzo Judgment clarifies the scope of the discretion given to contracting authorities to interpret tender documents in a way that would unfavourably result in the exclusion of economic operators (following Manova, C‑336/12, EU:C:2013:647, see here; and Cartiera dell'Adda, C‑42/13, EU:C:2014:2345, see here), as well as the limits of the possibility given to economic operators to remedy formal shortcomings in the documentation presented in the course of their participation in the tender for a public contract in order to avoid such exclusion.

Pizzo also follows the flexible approach previously established by the ECJ regarding reliance on third party capacities (as per Swm Costruzioni 2 and Mannocchi Luigino, C-94/12, EU:C:2013:646, see here; and in a related fashion to Ostas celtnieks, C-234/14, EU:C:2016:6, see here).

The case concerned the tender of a public service contract for the management of waste and cargo residues produced on board ships calling at ports within the contracting authority’s territorial jurisdiction (ie the Messina area, in Italy). The contracting authority received four tenders but decided to exclude three tenderers due to the lack of payment of an administrative fee that it considered a mandatory participation requirement, which led the authority to award the contract to the only remaining tenderer (Pizzo).

One of the excluded tenderers (CGRT) appealed the exclusion decision on the basis that the payment of the fee was only mandatory for works contracts, not for services contracts, and that the authority required such payment on the basis of a broad interpretation of the relevant rules and its general powers under Italian administrative law. In CGRT's submission, before proceeding to its exclusion from the tender, the authority should at least have given it the possibility to remedy the situation and pay the fee. CGRT's action was faced with a counterclaim by Pizzo whereby it challenged CGRT's compliance with the economic standing requirements for the participation in the tender due to the fact that it had relied on third party capacities (in the case, those of RIAL).

Therefore, the case raised two issues: 1) to what extent can a contracting authority engage in a (discretionary) broad interpretation of the tender documents in a way that incorporates the requirement to pay a fee and proceed to the exclusion of those tenderers that had not paid the fee without giving them the opportunity to remedy the situation; and 2) to what extent must contracting authorities follow a flexible approach to the assessment of economic and technical standing requirements when tenderers rely on third party capacities. The first issue is more interesting and controversial than the second one. Thus, let's focus on the second issue first.

Again, on the flexible approach to reliance on third party capacities and how it carries over to new rules of directive 2014/24

In Pizzo, the ECJ revisits its consolidated case law in this area, without adding much to the already clear position that the applicable EU rules create significant flexibility for tenderers to rely on third party capacity, unless the tender documents establish reasonable and proportionate restrictions justified by the subject matter of the contract. In its own terms:

23 The Court has held that EU law does not require that, in order to be classified as an economic operator qualifying for tendering, a person wishing to enter into a contract with a contracting authority must be capable of direct performance using his own resources (see, to that effect, judgment of 23 December 2009 in CoNISMa, C‑305/08, EU:C:2009:807, paragraph 41).

24 ... Article 47(2) and Article 48(3) of Directive 2004/18 does not lay down any general prohibition regarding a candidate or tenderer’s reliance on the capacities of one or more third-party entities in addition to its own capacities in order to fulfil the criteria set by a contracting authority (see Swm Costruzioni 2, paragraph 30).

25 ... those provisions recognise the right of every economic operator to rely, for a particular contract, upon the capacities of other entities, ‘regardless of the nature of the links which it has with them’, provided that it proves to the contracting authority that it will have at its disposal the resources necessary for the performance of the contract (see Ostas celtnieks, paragraph 23).

26 It must therefore be held that Directive 2004/18 permits the combining of the capacities of more than one economic operator for the purpose of satisfying the minimum capacity requirements set by the contracting authority, provided that the candidate or tenderer relying on the capacities of one or more other entities proves to that authority that it will actually have at its disposal the resources of those entities necessary for the execution of the contract (see Swm Costruzioni 2, paragraph 33).

27 Such an interpretation is consistent with the objective pursued by the directives in this area of attaining the widest possible opening-up of public contracts to competition to the benefit not only of economic operators but also contracting authorities (see, to that effect, CoNISMa, paragraph 37 and the case-law cited). In addition, that interpretation also facilitates the involvement of small- and medium-sized undertakings in the contracts procurement market, an aim also pursued by Directive 2004/18, as stated in recital 32 thereof (see Swm Costruzioni 2, paragraph 34).

28 ... however ... there may be works the special requirements of which necessitate a certain capacity which cannot be obtained by combining the capacities of more than one operator, which, individually, would be inadequate. It has thus acknowledged that, in such circumstances, the contracting authority would be justified in requiring that the minimum capacity level concerned be achieved by a single economic operator or by relying on a limited number of economic operators as long as that requirement is related and proportionate to the subject matter of the contract at issue. The Court has, however, stated that since those circumstances represent an exception, the requirements in question cannot be made general rules under national law (see, to that effect, Swm Costruzioni 2, paragraphs 35 and 36) (C-27/15, paras 23-28, references shortened).

The only novelty to be found in Pizzo is that the ECJ anticipates the interpretation of Art 63 Dir 2014/24 by stressing that

the specific provisions ... provide that it is possible for the contracting authority to require that the entity which is relied on to satisfy the conditions laid down with regard to economic and financial standing is to be jointly liable (Article 63(1), third subparagraph, of Directive 2014/24) or to require that, with regard to certain types of contracts, certain critical tasks are to be performed directly by the tenderer (Article 63(2) of that directive). Those provisions do not therefore impose specific limits on the possibility of divided reliance on the capacities of third-party undertakings and, in any event, such limits should have been expressly set out for in the call for tenders in respect of the contract at issue, which is not the case in the main proceedings (C-27/15, para 33, emphasis added).

This is in line with the interpretation of Art 63 Dir 2014/24 I hold in Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 315-318, but it is worth stressing that the ECJ has not yet tackled some of the restrictions allowed for under Art 63(2) Dir 2014/24 (ie the requirement that certain critical tasks are to be performed directly by the tenderer) which in my view run contrary to its previous case law. Thus, in this instance, the fact that the ECJ makes obiter comments on the likely future interpretation of the rules of Dir 2014/24 is worrying because there are two possible readings of paragraph 33 in Pizzo: (a) that the ECJ is giving carte blanche to the potential restrictions created by Art 63(1) and (2), or (b), that the ECJ is simply stressing that (regardless of their substantive merit and from a prior formal perspective), for such requirements to apply, they need to be created in the applicable tender documents (which, having not happened in this case, makes them irrelevant). I strongly vouch for (b), but I am certain that there will be claims based on (a) when the issue properly arises in litigation. Thus, in this case, the probably well-intended effort by the ECJ to anticipate the interpretation of the new rules may have created more shadows than lights.

On the tricky issue of the interpretation of tender documents, the duty to seek clarification or, at least, allow for remediation of short-comings leading to exclusion of economic operators

When tackling the challenge of the contracting authority's broad interpretation of the obligation to pay an administrative fee and its decision to exclude, without possibility to remedy such short-coming, the economic operators that had failed to pay it, the rephrased the question to mean 'whether the principle of equal treatment and the obligation of transparency are to be interpreted as precluding an economic operator from being excluded from a procedure for the award of a public contract as a result of that economic operator’s non-compliance with an obligation which does not expressly arise from the documents relating to that procedure or out of the national law in force, but from an interpretation of that law and from the incorporation of provisions into those documents by the national authorities or administrative courts' (C-27/15, para 35).

In that regard, the ECJ makes the following arguments and establishes the following reasoning:

36 ... all the conditions and detailed rules of the award procedure must be drawn up in a clear, precise and unequivocal manner in the contract notice or specifications so that, first, all reasonably informed tenderers exercising ordinary care can understand their exact significance and interpret them in the same way and, second, the contracting authority is able to ascertain whether the tenders submitted satisfy the criteria applying to the contract in question (see, to that effect, Cartiera dell’Adda, paragraph 44 and the case-law cited).

37 The Court has also held that the principles of transparency and equal treatment which govern all procedures for the award of public contracts require the substantive and procedural conditions concerning participation in a contract to be clearly defined in advance and made public, in particular the obligations of tenderers, in order that those tenderers may know exactly the procedural requirements and be sure that the same requirements apply to all candidates ...

45 ... in the case in the main proceedings, the alleged obligation to pay a fee to the AVCP [the Supervisory Authority on Public Procurement] can be identified only by the interaction between the 2006 Finance Law, the AVCP’s decision-making practice and the judicial practice of the Italian administrative courts in applying and interpreting Law No 266/2005.

46 As the Advocate General points out ... a condition governing the right to participate in a public procurement procedure which arises out of the interpretation of national law and the practice of an authority ... would be particularly disadvantageous for tenderers established in other Member States, inasmuch as their level of knowledge of national law and the interpretation thereof and of the practice of the national authorities cannot be compared to that of national tenderers.

48 ... it is apparent from the order for reference that there is no possibility of rectifying non-compliance with that condition that a fee must be paid.

49 According to paragraph 46 of the judgment in Cartiera dell’Adda ..., the contracting authority may not accept any rectification of omissions which, as expressly provided for in the contract documentation, must result in the exclusion of the bid. The Court stated, in paragraph 48 of that judgment, that the obligation concerned was clearly laid down in the contract documentation, on pain of exclusion.

50 However, in a situation where ... a condition for participating in a procedure for the award of a contract, on pain of exclusion from that procedure, is not expressly laid down in the contract documentation and that condition can be identified only by a judicial interpretation of national law, the contracting authority may grant the excluded tenderer a sufficient period of time in order to rectify its omission (C-27/15, paras 36-50, some references omitted and emphasis added).

However, I am not convinced by the way the ECJ has limited the opportunity to remedy the (interpreted) shortcomings in the tender documentation (or material requirements) to a mere possibility. As phrased in the operational part of the Pizzo Judgment, the ECJ has interpreted that

the principle of equal treatment and the obligation of transparency must be interpreted as precluding an economic operator from being excluded from a procedure for the award of a public contract as a result of that economic operator’s non-compliance with an obligation which does not expressly arise from the documents relating to that procedure or out of the national law in force, but from an interpretation of that law and those documents and from the incorporation of provisions into those documents by the national authorities or administrative courts. Accordingly, the principles of equal treatment and of proportionality must be interpreted as not precluding an economic operator from being allowed to regularise its position and comply with that obligation within a period of time set by the contracting authority (C-27/45, para 51, emphasis added).

I find this approach too lenient and I would have expected the ECJ to create a mandatory vis-a-vis procedure similar to the one applicable in case the contracting authority suspects an offer to be abnormally low under Art 69 Dir 2014/24. Generally, I think that rather than focusing solely on the principle of equal treatment and non-discrimination, it is worth stressing the relevance of the principle of good administration as well. From that perspective, if the contracting authority identifies a participation requirement that was not obvious from the tender documentation, it should be subjected to a mandatory phase whereby it allows tenderers to remedy the situation. The same would go for the interpretation of Art 56(3) Dir 2014/24 in terms of the possibility (in my view, non-discretionary) to seek clarifications from tenderers and to 'take all appropriate steps to avoid the rejection of candidates on the basis of shortcomings in the available documentation that could be overcome if the contracting authority were to exercise the appropriate level of diligence' [Public procurement and the EU competition rules (2015) 321-323].

Overall, I think that this is an area where the ECJ is avoiding a much needed delineation of the limits (or at least checks and balances) to be imposed on the discretion of the contracting authorities to proceed to exclusion without exhausting the possibilities for clarification or remedy of formal shortcomings in the submission of tenders. This is likely to be an area of continued litigation, particularly as the Pizzo case opens the door to different treatment of participation requirements that directly derive from the tender documentation (where the contracting authority is likely to have its hands tied and not be able to provide any scope for remedial action beyond the very limited possibilities foreseen in Manova and Cartiera dell’Adda) or that indirectly arise from its contextual interpretation (where the Pizzo approach seems to open a rather big door to the enablement of remedial actions). Thus, the last word is certainly not yet written...